BASF boosts nylon business with 1.6 billion euro Solvay deal

FRANKFURT/BRUSSELS (Reuters) - German chemicals group BASF (BASFn.DE) has strengthened its nylon business by agreeing to buy the global polyamide business from Belgian rival Solvay (SOLB.BR) for 1.6 billion euros ($1.9 billion).

A cyclist rides his bike past the entrance of the BASF plant and former Ciba production site in Schweizerhalle near Basel, Switzerland July 7, 2009. REUTERS/Christian Hartmann/File Photo

The acquisition complements BASF’s engineering plastics portfolio and enhance its access to key growth markets in Asia and South America, BASF said on Tuesday .

For Solvay, the sale is a further step in its strategy to divest its high-volume product range and focus on specific applications in aerospace, automotive and the oil and gas industry where it can achieve higher margins.

The business made sales of 1.32 billion euros last year and earnings before interest, tax, depreciation and amortization (EBITDA) of around 200 million. It has about 2,400 employees.

Its main competitors are lycra maker Invista, owned by Koch Industries [KCHIN.UL], and Ascend, owned by SK Capital.

With the deal, BASF boosts its activities in nylon, or polyamide 6-6, a heat-resistant engineering plastic that is used in textiles and also industrial parts such as tube fittings, cooling fans and engine air ducts.

The German company said it expected the acquisition to contribute to earnings from the first full fiscal year after closing, which is seen in the third quarter of 2018.

Solvay said the sale, as well as a stronger euro, would reduce its group core profit growth this year to 6 to 8 percent from a previous forecast for high single-digit growth. It plans to use the proceeds to bring down its debt.

“This is probably the last significant move we are making towards transforming the group,” Pascal Juery, a member of Solvay’s executive committee, told reporters on a call.

Solvay’s business is in a raw-materials joint venture with Invista, which for more than a year has complicated efforts by Solvay to divest it, sources have said.

Solvay and BASF said on Tuesday the joint venture partner had undertaken to support the move.

Solvay previously sold its PVC businesses across the globe and completed the divestment of its acetate tow business, a raw material for cigarette filters, this year.

Juery said the group planned to keep some high volume businesses such as soda ash to make glass, adding that such units generated a lot of cash.

BASF is also the world’s third-largest maker of crop chemicals and has been criticized by some investors for sitting on the sidelines of a flurry of mergers in that area.

Shares in both companies were little changed in early trading. ($1 = 0.8351 euros)